The Small Business Council, a group including entrepreneurs and an accountant that offers guidance to Whitehall on the private sector, told trade secretary Patricia Hewitt that companies were frustrated with the complexity rather than the number of regulations.

In its annual report, the group cites a survey that shows 7% of sole traders have not taken on staff because they could not face employment regulations.

This could represent 200,000 business that are discouraged from creating jobs by red tape.